C40 Cities Good Practice Guide - Creditworthiness

Many C40 cities do not have a credit rating or access to international capital, and therefore face challenges in making climate-related and other investments that drive economic growth and sustainable development.

The creditworthiness of a city is a vital component of its ability to finance low-carbon, climate resilient projects, particularly in terms of attracting investment and issuing bonds. Cities that have a low level of creditworthiness will struggle to raise the funds needed for new projects or for upgrading existing ones. An investment grade credit rating can help a city unlock access to a wide range of private investors, while the improvements in financial management required to achieve this are also likely to increase the city’s revenue.

MUNICIPAL REVENUE IN KAMPALA IN 2011

U$98.8bn

U$0.0bn

MUNICIPAL REVENUE IN KAMPALA IN 2014

U$226.5bn

U$0.0bn

This Good Practice Guide focuses on the key elements for a city to successfully increase its creditworthiness with a goal of investing in sustainable infrastructure. These include:

Increase Own-Source Revenue (OSR) and manage expenditure

Introduce best practices for financial management processes

Develop a ‘climate smart’ long term capital investment plan

Build a pipeline of public infrastructure projects

Undertake a ‘shadow’ credit rating assessment

The purpose of this Good Practice Guide is to summarise the key elements of creditworthiness good practice for global dissemination, highlighting the success of C40 cities in improving their creditworthiness.

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% OF 500 LARGEST DEVELOPING COUNTRY CITIES WITH GLOBAL CREDIT RATINGS

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% OF 500 LARGEST DEVELOPING COUNTRY CITIES WITH LOCAL CREDIT RATINGS

Cities in developing countries, especially secondary cities, still have limited access to capital markets, both local and global.

The steps a city will need to take to increase its creditworthiness will depend to a large extent on where it is starting from. It is important that cities initially concentrate on simple, achievable steps, such as identifying opportunities for increasing municipal revenues, before moving on to more complex steps, such as making changes in the regulatory or legislative environment.

For those cities with weak finances and management systems, their initial focus will be on general and wide-ranging improvements to financial management practices and capacity development.

For more advanced cities, it may be more appropriate to focus on building a pipeline of public infrastructure projects and establishing a track record of successfully managing such projects.

For the most advanced cities with strong finances and track record of repaying debts, applying for a ‘shadow’ credit rating (a credit rating assessment) may be helpful in order to highlight any issues they may need to address before applying for a formal rating.